Rate increases next year could exceed expectations: FTR

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BLOOMINGTON, Ind. – The latest forecast from FTR suggests it’ll be more of the same next year for the US economy, growth at a rate of about 2%.

However, Bill Witte, economic expert with FTR, said during a webinar today the growth will be better balanced and not almost entirely driven by the consumer, as it has been of late.

“What I see next year is a little better balance, some growth in business development, some growth in housing, though in both cases growth will be lower than what we saw earlier in the recovery,” Witte said.

He also predicted employment growth will continue, but slow, since the US labor market is close to full employment. But FTR’s most recent economic forecast was compiled before the US election results were in, and Donald Trump was elected president.

“I think that the impact of the election, from an economic point of view, is overall positive, in the sense that prior to the election I didn’t see much upside economically, but now I think there is some,” Witte said.

He noted the US economy could receive a boost from infrastructure spending and tax reform. The risk, however, is continued political deadlock, even if it comes from within the Republican party. He also noted protectionist measures are a concern under Trump.

“I’m hoping that wisdom from Congress will short-circuit any real negative effects there,” he said.

The big risks going into 2017, according to Witte, are: Europe’s sovereign debt issues; China’s widespread debt issues; a weaker US dollar, which could raise inflation; and a stronger US dollar, which could hurt exports.

Noel Perry, truck and transportation expert with FTR, said trucking companies will feel better off in 2017 than they did this year, even if there’s little change.

“2016 was a year that started with pretty good expectations in the trucking business,” he said. “And when it turned out to be relatively weak, particularly pricing-wise, people assumed the trucking business was in recession. It was not, but it was well below expectations. As we enter 2017, expectations are low and the economy is likely to be better than expectations, at least for the first half, so the industry will feel better in 2017 even though things are about the same. When we factor in expectations, 2017 will feel like a pretty good year.”

Later in 2017, FTR is still expecting capacity to tighten, and trucking rates could climb more than expected.

“In 2017, rate increases are going to exceed expectations and this will continue into 2018,” Perry said. “I fully expect 2018 to be a difficult year for pricing if you’re a shipper and 2017 will be a surprisingly difficult one. Not because it’s going to be spectacular but because people expect 0-2% (increases) and may get 4%.”

Perry said there’s about a 60% chance there will be a shortage of equipment and drivers by the end of 2017.

This is partly driven by new regulations, most notably one requiring electronic logging devices by December 2017, which will choke the trucking industry’s productivity and possibly chase capacity from the market. Perry doesn’t see Trump derailing safety-related regulations, though it’s conceivable the ELD mandate will get pushed out.

“The majority of the regulations looking at trucking are safety oriented, and I don’t expect him to have a dramatic change in attitude towards that, with the exception of being more realistic and conservative in the way they’re implemented,” Perry said. “With ELDs, the technical standards, if there is a possible need to delay the deadline from December of next year to later, his administration would be much more likely to do that.”

Perry did suggest Trump will likely pave the way for more pipeline development, which will help certain segments of trucking.

One of the greatest risks hanging over the US, according to Witte, is China’s economic wellbeing.

“China is facing some real long-term fundamental problems,” he said. “They have to structurally change their economy from a reliance on exports and heavy investments in infrastructure to one that is more of a consumer-driven economy. They are moving in that direction but it’s going to be a difficult process.”

Perry agreed, suggesting business owners make a habit of reading up on the latest news from China when they’re reading their morning paper and looking for warning signs.

“Look for news in China every morning when you read the Wall Street Journal, because they are sitting on an incredibly explosive situation,” he said, noting it probably won’t hit in 2017, but could.

James Menzies

James Menzies is editor of Truck News magazine. He has been covering the Canadian trucking industry for more than 15 years and holds a CDL. Reach him at james@newcom.ca or follow him on Twitter at @JamesMenzies. All posts by James Menzies